Class Discussions 2015

Topic 1. New cognitive perspectives

How to apply readings in #1 to think on Jan. 2015 terrorist acts?

▪ Are terrorists selfish or altruist? Groups

▪ Why do we pay more attention to French than Nigeria killings?

▪ Which emotions are involved?

▪ Was this type of problem easier in the past?

▪ What is the role of institutions?

▪

▪ ???

Sweet tooth(love for sweet food)

▪ Why do we like sugar and fat?

▪ Is such preference optimal?

▪ How do we deal with it?♦ Look for examples of culture, institutions, education, self-

control, rationality, emotions

▪ Does it determine our weight?

▪ What can you do as…♦ … a manager? At Danone? McDonald’s? Searle Inc.? ♦ … an economist? At the Ministry of… Health? … Education?♦ … student?

Consequences of cognitive specialization. Example:

▪ Physiological:♦ big brains♦ big hips♦ born helpless, ♦ learning; and

▪ But also institutional:♦ Family♦ Responsible

fatherhood

Outline: Our mind & our institutions

Cognitive specialists

Rationality (decisional

mechanism)

Cooperation (main ambit of interest)

Institutions

Modular mind

InstinctiveCo-opt instincts

Maladapted mind

EcologicalFill adap-tation gap

Consequences of cognitive specialization. Example:

▪ Physiological:♦ big brains♦ big hips♦ born helpless, ♦ learning; and

▪ But also institutional:♦ Family♦ Responsible

fatherhood

Instinctive rationalityis better than rational

▪ Vision = 2D 3D

▪ Is the horse coming or going?

▪ Presence of several heuristics noticeable when only one is present ♦ poor perception♦ “anomalies” (often, no

more than tricks)

Instinctive cooperation (1):Cheating detectors

▪ We falsify abstract hypotheses badly.E.g., cards with letters and numbers, “enforce rule ‘D 3’

D F 3 7

Badly if concrete: “If X eats hot chilies (HC), X drinks beer”:

Eats HC Eats SC Drinks beer Drinks Coke

Well if in terms of detecting cheaters: “enforce ‘If X drinks beer, X must be 18+’ by checking drink or age”

Beer drinker Coke drinker 25 yr old 16 yr old

The trolley case

Key concepts of topic 1

▪ Modular mind: in “rationality & cooperation

▪ Maladaptation: ídem

▪ “Artificial” adaptation: cultural, institutional, educational complements

▪ Determinism—nature vs. nurture—free will

Examples of modularity (& adaptation?)

▪ Jealousy? (Does it change with genetic tests?)

▪ Love? Purpose? Triggered by what? ♦ Intriguing: What about love vs. arranged marriages?

▪ Fear: snakes or cars?

▪ Xenophobia? ♦ Is it malleable, flexible? For good or for bad?

▪ Risk aversion, losses? Change? E.g., students…?

▪ Discount rate?

▪ Happiness puzzle♦ “I wish that I’d let myself be happier” (“Top 5 regrets of the dying”)

Optimizing topics 1 & 2

▪ Getting recipes for management (e.g., “Homo Administrans”, Nicholson)?

▪ Opening your mind, to complement you “toolkit” for self-control and social interaction

Topic 2. Business implications of evolutionary psychology

Outline of “Business Implications of Evolutionary Psychology”

▪ Organizing exchange♦ Opportunism and ‘Farsighted contracting’ in TCE♦ Moral hazard in principal-agent theory, etc.

▪ Management♦ General management ♦ Managing people♦ Marketing ♦ Finance

Questions on functional management

▪ Leadership♦ Is self-deception effective? In what areas?♦ Why do leaders usually feel alone? What do we ask them?

▪ Finance♦ Why do people continue to fall for pyramidal frauds? (e.g.,

Madoff, Foro Filatélico, preferentes, etc.)♦ Why do speculative bubbles keep happening?

▪ Marketing♦ Why do customers not like it when brands change their

logos?♦ Is advertising that addresses men sexist? And advertising

that addresses women? Any examples?

Biological “effects” on behavior and, in particular, management

▪ Do they replace, add or interact with the environment?

▪ Interaction complexity applications?♦ Management? (“Homo Administrans” examples)

Analysis “Homo Administrans”

▪ Contents: ♦ Research grounded on biology (nature) effects♦ Emphasizes interaction nature-nurture. E.g.,:

• “Genes do not operate in isolation. Environment is important,…, they interact in subtle ways”

• Describes research on such interaction: Arvey: “Business-women, it seems, are born. But businessmen are made”.

♦ Cautions on the limited explanatory power (2 last paras.)

▪ Puzzle: It is perceived as contradictory or biased ▪ When reading new info

♦ Confirmatory (100% nurture) “of course”, no complaint• I.e., do you subject nurture argument to the same standard?

♦ Conflicting (interaction nature & nurture) complaint!!!

How to deal with homo sapiens? (endowed with cheating detectors, emotional commitments, etc.)

Managing your career

▪ Which emotions threaten your career?

▪ How can you train yourself (“nurture”) for...♦ Postponing gratification?♦ Interacting better with others?♦ Speaking in public?♦ Keeping control over your career?

▪ How should you deal now with your partner? ♦ Making a deal, establishing “safeguards”?

How is to achieve work/life balance?

▪ What regrets are expressed by many managers, both men and women?

▪ Are they the same?

▪ Why?

▪ How can they be remedied?

How should UPF change?

▪ Groups: Size? Continuity? Identity? Competition?

▪ Exams: Necessary? How often?

▪ Homework: Necessary? Effects?

▪ Information on: Type of exam? Ranking in the class?

▪ Change: Teaching method?

▪ Others? Can you help UPF make students more rational? Meaning by rational? Improve self-control?

▪ Do we tend to limit the changes to “UPF”—i.e., everything but ourselves?

Topic 3. Incentives

Are incentives “effective”?

▪ What do we mean by “effective”?

▪ Yes, they are, but, unexpected results b/c two main sets of reasons♦ Quality versus quantity: Kerr in Business Econ:

“Getting B when you aimed for A”• Rat extermination/farming, preventive fires & healthcare,

organ transplants?, army paid by casualties caused, etc.

♦ Human nature—harder problem• Effective use of assumptions & empirical knowledge

▪ Does voluntary cooperation exist? ♦ Examples? http://bit.ly/wt61P6 ♦ Do all individuals cooperate voluntarily?

▪ When voluntary cooperation does exist, how do explicit incentives affect it?

▪ Can “strong” reciprocity...♦ ... help us negotiate?♦ ... create new types of incentive? ♦ ... alleviate the problem of collective action (“public goods”)?

▪ Do you interpret “indignation” as “strong reciprocity”? In Spanish politics? EU politics (e.g., EU-Greece)?

▪ Or more simple emotions, such as anger, rage, envy?

▪ Are incensed citizens, “indignados”, incurring a cost?

▪ Can it channeled productively?

▪ What would happen if we were to fine you for arriving late?♦ What’d happen if we lift the fines 2 weeks later?

▪ How will you motivate your children to make their beds?♦ BTW, do you make your own bed?

How would you interpret it in educational terms?

▪ If NYC could fine foreign UN diplomats for parking incorrectly, would they park better? Would they all react the same way?

Market and ethics

▪ How does the “market” affect ethical standards?

▪ Empirical evidence for cross-cultural experiments♦ Does voluntary cooperation increases or

decreases when subjects have been living in a developed market economy versus a tribal economy?

28

▪ How should we provide better incentives for university teachers?

▪ How should we provide incentives for university students? ♦ Consequences of bonuses? Fee discounts better?

▪ And for teachers’ evaluations by students?♦ What would happen if teachers were paid

according to students’ evaluations?♦ What have you learnt from the Bocconi study?

Is “corruption” present among UPF students?

What do we think of someone who…

▪ … often misses classes?

▪ … copies in exams? … copies in problem sets?♦ ... copies from you without permission?

▪ … does not return a wallet containing money?

▪ … uses Bicing without paying it?♦ … steals a bike in the street? … your bike?

▪ … slips a friend in for hospital tests?

▪ … gets medicine with a pensioner’s voucher not being a pensioner?

▪ … works while collecting unemployment benefits?

▪ … dodges paying for a ticket on the Metro? ♦ … steals someone else’s Metro season ticket?

▪ … avoids paying taxes?♦ … keeps some of the money collected for a graduation trip?♦ … keeps a commission for organizing a graduation party?

Topic 4. Delegation and divisionalization

Main ideas on divisionalization

▪ Review♦ More or less centralized solutions: driven by control &

information costs♦ Elements:

• Allocation of decision rights

• Evaluation of performance

• Compensation

♦ Hayek: importance of local information

▪ Centralized solutions: expense centers

▪ Decentralized: cost, revenue centers, etc.—units with greater freedom & responsibility

Centralized solution: expense centers

▪ Rules, budgets, subjective eval. of performance

▪ Typical problems♦ Incentives oversized♦ Information asymmetry budget gaming

▪ Transition into decentralized “market-like” solutions (“e.g., internal markets”)♦ Matching demand and supply: locus of uncertainty♦ A lot of central planning (an expense center itself!) to

manage this artificial market, even with weak incentives

Decentralized solutions: cost centers etc.

▪ Key: Adjusting information availability, decision rights and measured performance

▪ Common problem: non-measured variables that need to be carefully controlled: e.g., quality in cost centers

▪ Major issue: transfer pricing♦ Opportunity cost: But which costs to consider as relevant

depends on which decision you are making♦ Common puzzles & mistakes: e.g., allocating joint costs on

the basis of direct labor leads underutilize labor♦ Specific cases: decreasing costs, double margin (problem set)

♦ Interesting: field where microeconomics touches accounting

Social choice on public services

▪ Market failure ♦ Externalities, public goods, natural monopolies♦ How did they vary from XIX to XXI centuries?

• courts, police, prisons, army, foreign relations

• education, health, pensions, housing, etc., etc.

political intervention♦ Financing and producing public services

• How to organize production? Bureaucracy

♦ Only financing public services• How to contract them? Subcontracting, internal markets

Delegation and divisionalization (1)

▪ How to organize....♦ ... a company with a single product and a single

market? ♦ ... a company with several products and several

markets?♦ ... a university?

▪ What do we mean by “organize”? Economic divisionalization: ♦ Allocation of decision-making rights♦ Evaluation of performance♦ Compensation

Delegation and divisionalization (2)

▪ How to organize ... ♦ ... a manufacturing department?♦ ... a sales department♦ ... Zara’s China division?♦ ... Bankinter’s insurance business?♦ ... IBM’s strategy department?♦ ... the UPF library?♦ … UPF?

How to organize the Royal Household?

▪ News for Spain: recently set salaries♦ Issues, more generally?

▪ Functions? I.e., “outputs”

▪ What about inputs?♦ Accountability?♦ Bought where?

▪ Budget? ♦ How to set it? What to include?

Politicians’ salaries

▪ Do we discuss ♦ Level?, ♦ Function?, or ♦ Composition?

▪ Extrinsic & intrinsic motivation?

▪ Incentives

▪ Self-selection

Delegation and divisionalization (3): Implicit prices & budget gaming

▪ Discuss: ♦ According to “the head of the heart surgery

department at the Hospital de Sant Pau, seven patients died while waiting for operations there” (El País, 7 June, 2000)

▪ What are the explicit and implicit prices?

▪ Were they playing an strategic game?

▪ Applicable to conduct by local, regional and national governments?

Delegation and divisionalization (4)

▪ How are UPF, TV3, SCS paid and by whom?

▪ What incentives do users & suppliers have?

▪ What incentives do those responsible for budgeting have? ♦ Are they really “responsible” for the budget?

▪ Who does finance the budget? ♦ What incentives do they have? ♦ What information do they have?

• What incentives do they have to find information?

Delegation and divisionalization (5)

▪ Who knows most about value and cost?

▪ Budget cutbacks♦ Which is easiest, to cut back the wages of university

teachers, school teachers or metro train drivers? ♦ … cuts in preventive medicine or cardiology?

▪ Cost allocation♦ How do owners’ associations finance collective heating, and

what are the effects?♦ What are the consequences of taxes on employment? And

on consumption?

Delegation and divisionalization (6):“Internal markets”

▪ How to reform...♦ ... public healthcare? NHS? Shadow invoicing?

• (How are health services for civil servants organized?)

♦ ... primary and secondary education? School subsidies? ♦ ... the university system?

▪ Is there any point in creating an “internal market” of public services if it will only be “disobeyed”?♦ What changes and decisions has the current system of

school subsidies led to?♦ Example: restricting the offer of subsidized schooling when

demand for it increases

Delegation and divisionalization (7):“Automatic management”

▪ How are the following organized in Spain?♦ ... Notaries?♦ ... Property and mercantile registers?

▪ How were the following organized up to the 1980s...♦ ... courts?♦ ... Primary health centers?

▪ What are the characteristics of these solutions?♦ Powerful incentives? ♦ Civil servants or employees?♦ Degree of regulation?

Delegation and divisionalization (8)

▪ What are the consequences of insisting that a department must...♦ ... reduce costs? ... its average cost?♦ ... maximize revenue?♦ ... maximize its profit?♦ ... maximize the return on its investment (ROI)?

▪ What should we think about a positive deviation from standard performance?

Delegation and divisionalization (9)

▪ What is the optimal transfer price?

▪ What problems arise in a context of decreasing costs?

▪ How can this be considered in accounts?

▪ Should it include fixed costs?

Case: Airport fees

▪ “Lack of passengers advises closing down 15 airports”

▪ How should we set the fees to use these 15 airports? On the basis of♦ Marginal cost♦ Total average cost

▪ AENA recently rose fees in underutilized airports such as El Prat or Barajas ♦ Is it sensible? Consequences?♦ Whose interest is such pricing serving? AENA’s owners?♦ How would you apply the transfer pricing analysis?♦ Did Fomento the same for the AVE?

Delegation and divisionalization (10):Franchising

▪ How many companies make up the +30,000 McDonald’s restaurants? ♦ What sort of companies are they?

▪ What is the point of franchising? ♦ Think, e.g., in which sectors is it mostly found

▪ What are the standard functions of franchisors and franchisees?

▪ For whom does the franchisor perform a policing work?

Block III. Institutional environment

How to decide on…?

▪ … life expectancy?♦ How do we decide? Individually? Socially?♦ Is there an optimal level? Is the maximum level optimal?

• Individual = market? “Social” = political? Are they the same? Even for vaccination?

▪ … education?♦ How should decisions be made? Individually? Socially?♦ What is the optimum? Is the maximum the optimal level? ♦ Does the optimal way of deciding on these matters change

between basic education and university education?

Topic 5. Market and politics

▪ The three elements of the economic problem♦ Optimization (Robbins)♦ Information (Hayek)♦ Exchange (Coase)

▪ We are interested in: ♦ Analyzing how they are resolved by the market

and by politics—(BTW, Is the market “social”?)♦ Learning to compare how they do so♦ Understanding how they complement each other

Decisions affecting life expectancy

Individual decisions

Social decisions

Smoking, drinking

Driving speed

Purchase health insurance

Diet

…

Taxes

Traffic radars

“Free” healthcare

Tax on fat, sugar, etc.

…

Life expectancy: shorter in USA than Spain

▪ Why?

▪ Which one is optimal?

▪ Might there be decision failures in the USA?

▪ Might there be decision failures in Spain?

Are there “failures” in these decisions? How do these decisions differ? “Failures”, with respect to what? Do these failures also differ?

Individual decisions

Social decisions

Smoking, drinking

Driving speed

Purchase health insurance

Diet

…

Taxes

Traffic radars

“Free” healthcare

Tax on fat, sugar, etc.

…

Hayek on Life Expectancy

▪ What is the “economic problem” with respect to life expectancy? For…♦ Robbins♦ Hayek♦ Coase

▪ What is the relevant information? Where is it located? ♦ What are “scientific” & “specific” knowledge? ♦ Are both types of info present in a diet decision?

▪ What are the root causes of some typical failures?

Topic 5. Market and politics (1): The role of information

▪ If the economic problem is to correctly allocate resources, what is required to solve it?

▪ Who “should” decide on which univ. / school to go to? (E.g.: single-sex schools)

▪ Who knows better about the different schools?♦ Students, parents, teachers, planners, politicians?

▪ Who has better incentives?♦ For finding information? For deciding? For Innovating?

▪ (Aside: Should these questions be posed in terms of “best” or in terms of “better”?)

Topic 5. Market and politics (2): How do we value them?

▪ Which schools do politicians choose for their children? Is this relevant?

▪ Who do we want to choose the schools for our children in… Spain, today; Denmark, today; Iran, today; Spain, in 1965?

▪ Do politics / markets decide by majority vote?

▪ How does personal wealth affect decision rights in markets and politics?

Topic 5. Market and politics (3): Markets or politics?

▪ Who does the market compete against?

▪ Which markets and which politics? ♦ Bad vs. ideal? Ideal vs. bad? Real vs. real?

▪ Danger: implicit asymmetric assumptions on behavior, information, competition

▪ Food for thought: ♦ Identify examples of each type of comparison in the

press and in radio and TV debates♦ Who generally wins when decisions move from the

market to politics? And vice versa?

Economic failures

▪ Rationality Individual Collective optimum optimum

▪ Markets: ? ? ?

▪ Politics: ? ? ?

Politics’ failures

▪ Representation Agency w. self-interest & info asymmetry opportunism, corruption

▪ Collective action misinformed voters, lack of control, prevalence of concentrated, minority interests

▪ Behavioral limitations: emotions, herding, etc.

▪ Tradeoffs w.r.t. to competition (e.g., in terms of stability) Lack of competition

Topic 5. Market and politics (4):Improving the performance of politics

▪ Role of competition: Role of barriers to entry & new entrants? What can we expect from them?

▪ Market for beliefs / ideas: How can we improve citizens’ information on...♦ ... the value of public services? ♦ ... what we pay for them? (Is this the same as cost?)♦ Example: What effects do “shadow invoices” have on the

transparency of public expenditure?

▪ Weighing information: Should babies have a vote? Their parents? Only the over-21s? Immigrants? Only taxpayers? Should pensioners have just half a vote?

▪ How can we use our instincts to improve / worsen political decisions? Herd instinct? Ownership?

“Vodafone convinces the advertising regulator to oblige all mobile phone cos. to include

Value Added Tax in their advertised prices”(Feb. 7, 2014, http://ow.ly/tntXN)

▪ Are information asymmetries present?

▪ In which markets are they present?

▪ What’s the optimal rule? ♦ Does it depend on the tax structure?

• E.g., what with a constant % rate?

♦ Is it optimal a mandatory or a default rule?

Topic 5. Market and politics (5): The case of electricity

▪ Has the price of electricity risen?

▪ Do we finance renewable energies with transparency?

▪ Generally speaking, is the policy right or wrong? Costs: ♦ Nuclear, 44 € / MW/h (*)♦ Coal, 72 € / MW/h (*)♦ Fuel-gas, 69 € / MW/h (*)♦ Wind, approx. 90 € / MW/h♦ Photovoltaic, approx. 430 € / MW/h

• Sources: (*) National Energy Commission, 08 http://www.cne.es/cne/doc/publicaciones/cne82_08.pdf

▪ See also this for a critique

Topic 5. Market and politics (6)

▪ Are both markets and politics social decision-making processes?

▪ Easier to see politics as social decision-making?

▪ Is A. Smith’s finding intuitive?Individual optimums Collective optimal

▪ When does the market fail? Only the market?

Rationality Individual optimums Collective optimum

Topic 5. Market and politics (7): Transaction costs & property rights▪ Externalities▪ Coase Theorem: zero TC irrelevant▪ What is Coase’s contribution to the “economic

problem”?♦ Property rights

incentive to produce and use information♦ Institutions

reduce transactions costs specialization productivity

♦ Comparative analysis of realities (politics vs. markets, public/private provision, alternative regulations)

Land owners vs. mountain bikers: Property rights? Externalities? Transaction costs?

Similar cases with bikes in cities’ sidewalks?

Externalities are reciprocal

▪ Nonsmokers on smokers

▪ Bicycles on cars

▪ Pedestrians on bicycles

▪ Punctual students on latecomers

▪ More examples ?

“If you run over a wild boar, you’re guilty”(El País, Feb 13, 2014)

Allocation of liability

▪ What are the consequences that the law makes either the land (or animal) owner or the driver (or car owner) liable?

▪ Optimal levels of accidents, boars, cars, fences, speed, precaution…?

▪ Will such levels be affected by alloc. rule?♦ Are transaction costs high? (sensible here?)♦ If high, who is in the best position to decide? ♦ Optimal for: abandoned pets? Wild animals? In hunting

areas? In highways? ♦ Optimum changes with technology (e.g., use of chips to

define property rights on pets)

Topic 5. Market and politics (8)

▪ How can we correct failures of rationality in people who are inclined to be violent?

▪ Can we apply this criterion to other failures on rationality?♦ Example: If we protect “weak” parties to a contract, what

incentives do they have to inform themselves & stop being weak?

▪ Is it easy to distinguish between strong and weak parties after the event?♦ E.g., today’s victims of fraud are yesterday’s big investors

▪ Who is most rational – the consumer or the citizen?♦ E.g.: Speed limit of 110 km/h on highways

Poaching wildlife

▪ Why? What to do?♦ Key variables?

▪ Does allocation of property rights fully solve the problem?

Topic 5. Market and politics (9)

▪ Is the number of pollinating bees optimal?

▪ Why do streets get congested?

▪ Why fish stocks get depleted? ♦ Why is this not the case in Scotland?

▪ Why is the air polluted? What can be done?

▪ Would it be enough to define and allocate property rights? What does Varian omit?

Topic 5. Market and politics (10): How to evaluate market vs. political solutions?

▪ Examining their real performance♦ We should not compare

• A real market, imperfect, governed by self-interest

• An ideal, perfect politics governed by angels

♦ Nor should we compare an ideal market with real politics♦ Are real cases determined by politics, markets, or… both?

▪ Assuming human beings are similar w.r.t.♦ Opportunism: Madoff & Nixon; Jobs & Obama♦ Rationality: consumers & voters

▪ What do progressives and classical liberals often assume about politics and markets?

Topic 5. Market and politics (11): Applying insights from topics #1, 2, 3 into #5

▪ We have seen♦ Bounded rationality: e.g., limited “steps of reasoning”♦ Role of emotions: e.g., voluntary cooperation, strong reciprocity

overcoming collective action, fear♦ Herding behavior: does it influence social change?

▪ Do we define fairness in equal or in proportional terms? ♦ Correlates with economists’ normative (what to do) and positive

(how things are) positions (see Randazo & Haidt clipping)

▪ Role of culture, values and beliefs in society? ♦ Possibilities of markets and institutional reform such as, e.g., labor

market liberalization, stronger competition in politics♦ Cultures and values, a hard constraint, at least in the short term?

6. Institutional support for private contracts

Topic 6. Institutional support for private contracts (1): Basic concepts

▪ Promises as the content of exchange

▪ When are promises defined?♦ Ex ante / ex post♦ By contract, by law (default vs. mandatory rules; retroactive)

▪ By whom?♦ All parties, third party, one party (standard-form contracts)

▪ How are promises enforced?♦ One party (moral enforcement)♦ Second party (in a repeated exchange), or indirectly

(representation)♦ Third party (market vs. judicial enforcement)

Topic 6. Institutional support for private contracts (2)

▪ What are “default rules” for?♦ E.g. marriage and separation of property♦ Do they play a greater role? E.g., “salience”

▪ What are “mandatory rules” for?♦ From a normative point of view (“what should be”)♦ From a positive point of view (“what is”)

▪ What are judges for?♦ Normative view♦ Positive view

Topic 6. Institutional support for private contracts (3). Two examples

▪ Freezing residential rents♦ Key questions? I.e., type of rule?♦ Short term effects? Through which contracts?♦ Longer term effects? Through which contracts?

▪ Rule freeing a mortgagee from the remaining debt when giving up the property (dación en pago)♦ Retroactive or prospective?♦ Default or mandatory? Which default rule?

Topic 6. Institutional support for private contracts (4): Labor

▪ How is it organized: Market or politics? “Corporatism”?▪ Taxes: amount, transparency, progressiveness

♦ E.g., Social Security charges “paid by the Employer”—see Vox

▪ Contract regulation♦ Retroactive “rights”? ♦ Default or mandatory rules?♦ Individual or collective?

• If collective, nationwide, province-wide or at firm level?

▪ Content of exchange♦ Wages: amount? Is this relevant?♦ Work conditions♦ The meaning of “free dismissal”: bargaining for severance pay

• Human capital, expropriation, “new productive model”

▪ Enforcement: asymmetrical, impartial, judicial?

Topic 6. Institutional support for private contracts (5): Ryanair

▪ Court rules that “Ryanair cannot charge 40€ for printing a boarding card”

▪ Type of rule?

▪ Consequences?

▪ Relevant assumptions?♦ Competition♦ Types and homogeneity of customers♦ Others?

Topic 6. Judges (6): Solution or problem?

▪ How do parties want ex ante for judges to decide ex post? Counterfactual hypothesis

▪ How do parties want ex post for judges to decide?

▪ Judges’ difficulties solutions?♦ Self interest: corruption, morality♦ Cognitive: e.g., hindsight bias

• Example: mortgage interest rate “floors”

Advices from Don Quixote to Sancho (a)

▪ “Try to find the truth in the rich man’s promises and gifts, and also in the poor man’s sobs and complaints”♦ (“Procura descubrir la verdad por entre las

promesas y dádivas del rico, como por entre los sollozos e importunidades del pobre”)

Advices from Don Quixote to Sancho (b):

▪ “Never follow the ‘law of fit’. It is usually followed by the ignorant who think they are sharp”♦ (“Nunca te guíes por la ley del encaje, que suele tener

mucha cabida con los ignorantes que presumen de agudos”)

♦ Law of fit: a decision taken by a judge based on whatever takes his fancy, without recourse to legal provisions

• (Ley del encaje: “la resolución que el juez toma por lo que a él se le ha encajado en la cabeza, sin tener atención a lo que las leyes disponen” (Covarrubias))

Topic 6. Institutions… (7): Extractive elites: rationale or excuse?

▪ Is rent extraction, opportunism in economic or social interaction rare or prevalent? E.g., shirking in agency: ♦ Rents extraction by “the elite”?♦ Collective action by voters?♦ Is corruption more prevalent among rich or poor people?♦ Does it change if we think on tax evasion, benefit capture,

redistribution politics?

▪ Should we allocate responsibility for political failure to the elite or the people? ♦ How should we think about it? I.e., whatever current

allocation how to allocate it productively?

Topic 6. Institutions… (8): Culture & Institutions

▪ “Cultural explanations are useless. E.g., we Spaniards now drive much more slowly”♦ Was there info asymmetry on speeding? Sustainability♦ Adaptation: “Catholic” measures (ex ante control of all)

▪ Do institutions produce our culture? • More in long run? E.g., the Reformation as institutional change

▪ Does culture constrain institutions? At least, change

▪ Is this important for institutional “transplants”? ♦ Danish labor “flexicurity”? Finish schools?

Spanish values as compared to those in main EU countries

▪ Responsibility♦ We value less how democracy works, politicians &

institutions; but we are also the less informed♦ Only country in EU where citizens blame more Northern

than Southern Europe for the crisis

▪ Social preferences♦ With Italy country with strongest / weakest belief that the

State / the individual should have the primary responsibility for ensuring a a decent level of life”

♦ Least support for the market economy

▪ Source: Study on World Values, FBBVA, April 2013

Spain according to the World Justice Project’s “Rule of Law Index”

, as compared to other rich countries

▪ Same corruption level but we punish corruption less http://ow.ly/shmrv

▪ We monitor governments less

▪ We carefully guarantee individual rights, mainly in labor area, but hardly monitor government

▪ We suffer a deficit in the enforcement of judicial decisions, as well as more judicial delay

▪ Finally, our laws are less stable

7. The function of business in society

Topic 7. The function of business in society (1)

▪ Can you name a film that portrays business, entrepreneurs, business managers in a favorable light?

▪ How are they usually portrayed?♦ Objectives, morals, personal relations, etc.?

▪ How are big and small, rich and poor, strong and weak companies portrayed?

▪ How are politicians portrayed?♦ Politicians versus citizens?

Topic 7. The function of business in society (2)

▪ Which have the best reputation – banks or savings banks (“cajas”)?

▪ Which have most mortgages – banks or savings banks?

▪ Which have received most public aid – banks or savings banks? Read, e.g., this (ES)

▪ What “social work” did/do the savings banks?

▪ What is the consequence for a bank of announcing big profits?

Topic 7. The function of business in society (3)

▪ What is “corporate social responsibility”, CSR?

▪ Is CSR♦ Necessary for correcting market failures?♦ Democratic?

▪ Does CSR affect corporate control?♦ What happens if an agent has several different objectives?

▪ Does the “moral circle” apply to companies? ♦ Whether small or large? ♦ Whether they have a reputation or not? ♦ Does it entail risks?

Topic 7. The function of business in society (4)

▪ Is there a conflict between social and individual responsibility? ♦ What can/should we do if “Nike” trainers are the product of

child labor?

▪ Is there a conflict between morality and rationality? ♦ Can morality be rational to different degrees?♦ Examples: Are the consequences of the following relevant?

• Child labor

• Aid in famine,. E.g. mosquito nets

▪ How does the sale of “indulgences” work?

Topic X. How do we think?

▪ What do Friedman and Arrow say in their articles?

▪ Which of them do you agree with?

▪ Which of them do you think is more “political”?

▪ When we come up against arguments that go against our beliefs, do we tend to consider them more or less “political”, “ideological” or “immoral”?

▪ How to move from beliefs to ideas?

Topic Y. Bye, bye

▪ Recurring Topics♦ Gap between demand and skills and attitudes

• Can we apply the statement made by Guzmán de Alfarache: “It was difficult for me to learn to serve when I had been taught to give orders”? (“Se me hacía duro aprender a servir habiendo sido enseñado a mandar”)

♦ Cost and fear of freedom, especially in ourselves

▪ Advice♦ Be vigilant on the gap, examine experiences and react fast ♦ Be free:

• Think, instead of following others like a sheep

• Choose, instead of tying yourselves to a chain of more or less unconscious decisions